Sweden’s economy runs on two tracks, says Danske Bank, a Copenhagen-based bank, which actually thinks the economy will grow slightly this year. Consumers and the housing market are dragging the economy down; but the business sector and the labour market are both proving more resilient. Retail sales fell by 11.6% in March compared with the same month last year, according to Statistics Sweden, owing to soaring inflation, which in May was at an annual rate of 9.7%. And as Sweden’s central bank has raised interest rates, borrowing costs have increased, which in turn has caused a fall in house prices (see chart) that is faster than almost anywhere else in Europe. In the last quarter of 2022 they fell more than 10% year-on-year, according to Nordic Credit Rating, a Stockholm-based agency. Nordea Bank reckons they will drop by 20% from peak to trough.
The country’s biggest landlord, Samhällsbyggnadsbolaget i Norden (SBB), is on the brink of bankruptcy as it struggles to refinance its debt. Its bonds are rated as junk by S&P and Fitch, two credit-rating agencies. Hedge funds are shorting the shares of several debt-laden Swedish real-estate groups, and SBB in particular. The firm recently replaced Ilija Batljan, its founder, as CEO and is considering all strategic options, including an outright sale.
The economy’s second track is in better shape, as the business sector and employment are both holding up. Boosted by the weak krona, Swedish exports have grown strongly since the pandemic, and companies continue to invest in machinery, equipment and research. Construction is stable in spite of the slump in the housing market, because of the government’s investment in infrastructure. The jobless rate at 7.9% is tolerable.
The worst finally seems to be over, with retail sales and consumer confidence indicating that consumption has bottomed out. House prices may stabilise. “But inflation is still very high and the krona is very weak,” says Michael Grahn of Danske Bank. That’s why Riksbank, the central bank, raised rates, for the seventh consecutive time, by 0.25% on June 29th to 3.75% and is expected to increase rates by another 0.25% in September.
